A Study Shows How to Find New Ideas Inside and Outside the Company

Executive Summary

Many companies are encouraging employees to scout for new ideas among external partners, such as universities, research institutes, competitors, and customers. Much research suggests that exposing employees to a broad range of external partners can lead to more innovation at the company. But can this detract from the work they do inside the company? A study of 615 senior IBM employees found that those with a broad external network were more innovative only when they devoted enough time and attention to those sources. Managers have to ensure that employees searching for new ideas outside the firm make the best use of their time and network in ways that are likely to enhance innovation.

Bill Joy, the co-founder of Sun Microsystems, was famous for saying, “Not all smart people work for you.”

Companies know this. That’s why many seek to tap the potential of “open innovation” by encouraging their employees to scout for new ideas among external partners, such as universities, research institutes, competitors, and customers. Companies as diverse as Procter and Gamble, Henkel, Lego, and Bosch are all using technology scouts to import ideas from external sources.

Much research suggests that exposing employees to a broad range of external partners can lead to more innovation at the company. But if they spend too much time searching for new ideas outside their firm, this could detract from the work they do inside the company. They will presumably have less time to attend internal meetings, talk to colleagues, and stay on top of email. So while they may be increasing the potential for future innovation, their time away from firm activities could negatively affect the firm’s current productivity.

Together with David Gann from Imperial College London, we conducted field research at IBM to explore whether searching for new ideas outside the firm led to greater innovation for the company. We studied 615 IBM employees who were either Distinguished Engineers or nominated to the Academy of Technology — two bodies of senior technical experts explicitly tasked with searching for new ideas. Together, these two groups of experts produce a substantial amount of IBM’s patents, which is serious business for IBM. IBM has been the most active patenting organization in the U.S. for the past 24 years: In 2016, IBMers were granted more than 22 patents per day and IBM became the first firm to surpass 8,000 patents awarded in a single year.

These high-performing senior technical experts are granted significant autonomy as to how they search for new ideas, who they interact with, and how they spend their time. As one expert explained to us: “Our job is to figure out what the next [thing] is, to sift all the possible things, which ones are going to matter to IBM and then go out and figure out what is really happening and come back with recommendations…Why we think this matters, how we think this is going to play out and where IBM should fit in.”

We surveyed this group to find out how they allocated their time both inside and outside the firm. While some experts focused on a narrow set of partners (“I just talk to customers”), others were more broad: “We talked to everyone we could think of that mattered in the [technology] community to try and find out what their views of it were, how they saw it playing out, rather than just sitting inside IBM and speculating.”

These experts most often networked with customers and users, followed by business partners who worked at other companies that were not direct competitors. Many also networked with consultants, and people from competing firms and universities. We measured the breadth of each person’s external social network by the different types of external sources they interacted with. Then we assessed how the breadth of each person’s external network was associated with subsequent innovation outcomes at IBM, like the quantity and quality of the patents the individual produced.

Surprisingly, we found that our respondents’ most common sources of inspiration for new ideas were their colleagues inside, rather than outside, the firm. In contrast with current theories of open innovation, people with broader external networks were no more innovative than people with narrow external networks. Many of the experts relied mostly on internal networks and were still innovative. To better understand this puzzle, we examined how people allocated their time among their information sources inside and outside IBM.

We discovered that experts with a broad external network were more innovative only when they devoted enough time and attention to those sources. For instance, people who interacted with eight different types of partners were only more innovative if they allocated half of their time outside the organization. Those who spent more time cultivating external relationships reported higher innovation outcomes, in terms of either patent quantity or quality. When people created a broad external network but did not spend adequate time learning how to use the information gained, the costs of being more distant from the organization and engaging in external networking outweighed the benefits of identifying novel information.

This is an important finding, as many managers are keen on the idea that networking and forming external ties can boost the flow of ideas that spurs innovation. What we found is, for that to happen, employees need to devote significant time and attention to creating and sustaining their external relationships. In some cases, people who focused on learning from colleagues inside the organization were just as innovative.

About 30% of the respondents who had a broad external network did not allocate enough time to learn from those relationships. These people would have been better off deepening relationships with their colleagues inside the firm. For spending time inside the company is also important to understanding the firm’s innovation needs and knowing how to develop and execute on innovative ideas.

Based on this and related research, we identified some ways managers can ensure that employees searching for new ideas outside the firm make the best use of their time and network in ways that are likely to enhance innovation.

First, not every employee needs to cultivate a broad external network to innovate. Every firm needs a mix of skilled networkers and people who understand the inner workings of their own organization. In large firms, people often become entrenched in their own function, barely interacting across divisions. Managers should promote networking outside and inside the company as important sources of learning. A first step in making this happen is to find out which approach is better for current employees and map out potential networks inside the organization.

Second, cultivating a broad external network takes more time than people realize and involves certain tradeoffs. Our research shows that many people may be misallocating their time by trying to expand their external networks without devoting the additional time needed to truly learn how they can benefit from the ideas they come upon. In this case, employees incur all the costs of networking without the benefits; they create weak ties without recouping benefits for the firm. Managers can address this by discouraging “networking for networking’s sake,” and encouraging employees to create substantive ties that support incorporating outside knowledge into their work at the firm.

Third, since it takes time to develop fruitful relationships with external partners, the employees who do this can become more distant from the company in which they work. Companies thus need to ensure that these employees not only devote time to networking externally, but also prioritize absorbing and applying what they learn—and diffusing this knowledge internally. Many people told us that they didn’t have enough time to reflect on and process what they learned and how it might apply to the firm. This is important in order to connect external knowledge with those who spend more of their time working in the company. Thus, managers may want to pair their external “power networkers” with their more internally focused colleagues to obtain the best of both worlds: leveraging the external sourcing of ideas and connecting them with skilled internal brokers who can perhaps better direct the application of novel ideas.

There are many ways in which the search for external ideas can be beneficial for innovation. However, our findings suggest that one cannot attribute sweeping benefits to scouting without considering the opportunity costs. Time networking outside the firm implies less time learning about the firm’s innovation needs. And if someone is creating a broad network without reflecting on how to apply what they learn, then the benefits of networking are difficult to realize. Firms can mitigate these costs by encouraging employees to spend time networking with their internal colleagues, while supporting externally-focused scouts to deepen and leverage their outside relationships to boost innovation at the firm.

Linus Dahlander (@linusdahlander) is an associate professor of strategy at ESMT Berlin. His work focuses on innovation, entrepreneurship, and networks.

Siobhan O’Mahony is an associate professor and Chair of the Strategy and Innovation Department at Boston University’s Questrom School of Business.